Brent Crude vs. WTI: The Best Performing Commodity

Crude oil is one of the most vital commodities in the world. Whether we realize it or not, it has a presence in our everyday lives and is a fuel that our world simply cannot function without. But when it comes to crude investing, traders have long had two choice staring them in the face; Brent oil, and West Texas Intermediate (WTI) oil. The two have stumped many for quite some time, as they search for the intricacies that make these seemingly similar commodities inherently different. Beyond the attributes that set these two apart comes the question of which type of crude makes for a better investment. Recent historical data puts that question to rest, as one clear winner emerges [see also 25 Ways To Invest In Crude Oil].

What’s The Difference?

While there is a lot behind what separates these two commodities, the basic differentiating factor is that WTI is a lighter, sweeter crude, while Brent is more sour. This is generally based on the sulfur content of the underlying fuel with 0.5% being a key benchmark. When oil has a total sulfur level greater than half a percent, then it is considered sour while a content less than 0.5% indicates that an oil is ‘sweet’. Sour oil is more prevalent than its sweet counterpart and it comes from oil sands in Canada, the Gulf of Mexico, some South American nations as well as most of the Middle East. Sweet crude, on the other hand, is generally produced in the central U.S., the North Sea region of Europe, as well as much of Africa and the Asia Pacific region. While both types are useful, end users generally prefer sweet crude as it requires less processing in order to remove impurities than its sour counterpart [for more crude oil news subscribe to our free newsletter].

Because Brent is slightly more sour, the commodity often trades at a premium to WTI, though there is a fair amount of speculation as to how long this premium will last or if it will ever be erased. Aside from the differences in their overall makeup, the performance of each commodity is vastly different [see also Crude Oil Guide: Brent Vs. WTI, What’s The Difference?].

Brent and WTI: Head-to-Head

Perhaps the easiest way to track the historical performance of the commodities involves two ETFs, the United States Oil Fund (USO) which tracks WTI futures, and the United States Brent Oil Fund (BNO) which offers exposure to Brent crude. Since its inception in mid 2010, BNO and Brent oil alike have been slaughtering WTI, with a return of approximately 75% for the fund. Meanwhile, USO has gained just 25% in comparison; while this is still an impressive leap given the time period, it still doesn’t hold a candle to Brent. Narrowing the time frame to just 2011, BNO jumped 19.5% compared to a return of -2.1% for USO. As for this year, BNO is up 15% YTD while USO is up just 7.4% by comparison.

Perhaps the biggest question that comes from this data is how Brent has been able to outdo its competitor by such a large margin, despite both commodities being relatively similar in the grand scheme of things. The past two years have seen a fair amount of volatility from the Middle East, a region that produces a fair amount of the world’s Brent supply. With questions over the stability of these nations as well as a drop in supply from a number of heavy hitters, it comes as no surprise to see Brent make such large strides especially given that WTI production was relatively unharmed during all of this time [see also Iran Tensions And Crude Oil: What It Means For Your Portfolio].

The only issue that remains is how long the premium between the two will last and what will happen to Brent if the Middle East is able to fall into a more stable pattern. Brent’s gains have been astounding, but this could trap investors into buying in to a commodity that is set to fall based on overarching macroeconomic factors. At the same time, the Middle East has been consistently unstable in recent years, so it may be a while before we see the region calm down and Brent fall. If your mindset falls on that side of the equation, Brent is the best crude option for you as it has the potential to continually outperform WTI.

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Disclosure: No positions at time of writing.

This entry was posted in Brent Oil, Energy, Exclusive, WTI and tagged , . Bookmark the permalink.

Commodity HQ is not an investment advisor, and any content published by Commodity HQ does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities or investment assets. Read the full disclaimer here.

8 Responses to “Brent Crude vs. WTI: The Best Performing Commodity”

  1. [...] Today will see a vital mercantile indicator from a U.K. as jobless claims for a month of Feb will be strictly released. Last month’s news left something to be desired, as “U.K. jobless claims rose some-more than economists foresee in Jan and stagnation reason during a tip rate for 16 years in a fourth entertain as a economy contracted” writes Scott Hamilton. Lowering stagnation is pivotal to any mercantile liberation and that routine starts by obscure jobless claims for a nation [see also Brent Crude vs. WTI: The Best Performing Commodity]. [...]

  2. [...] Are we near the top or did the bull train just leave the station? Fundamental news has been bolstering equity markets higher since the start of 2012, although many investors are fearful that if they jump in now, the next market correction may very well wipe out all of their gains and then some. Luckily, thanks to the evolution of the ETF industry, investors who wish to dip their toes in the water without going “all in” so to speak have a number of valuable instruments at their disposal [see also Brent Crude vs. WTI: The Best Performing Commodity]. [...]

  3. [...] Are we near the top or did the bull train just leave the station? Fundamental news has been bolstering equity markets higher since the start of 2012, although many investors are fearful that if they jump in now, the next market correction may very well wipe out all of their gains and then some. Luckily, thanks to the evolution of the ETF industry, investors who wish to dip their toes in the water without going “all in” so to speak have a number of valuable instruments at their disposal [see also Brent Crude vs. WTI: The Best Performing Commodity]. [...]

  4. [...] At a high level, oil ETFs function just like any other exchange-traded product: they track an underlying index. But unlike traditional equity ETFs that hold a basket of securities comprising the underlying indexes, most oil ETFs achieve exposure in a very different manner. Because physically buying and holding most oil and gas products is prohibitively expensive, oil ETFs instead generally invest in near-term futures contracts on the underlying commodity to gain exposure to prices. While this strategy may track spot prices fairly closely in certain environments, it may be way off in others [see also Brent Crude vs. WTI: The Best Performing Commodity]. [...]

  5. [...] profit margins due to the difference between the energy it must purchase but can then sell the refined fuel in the [...]

  6. confused-reader says:

    75% return for Brent vs 25% for WTI? Pull the spot prices … that return is a quirk of the construction of the ETFs not of the two benchmarks. I came to this article looking for research and understanding – but instead I found total misinformation. Disappointing.

  7. [...] Brent Look-Alike Crude: There is no specific reasoning given behind the name of these contracts, but one can simply assume that it refers to the fact that Brent and WTI are relatively close in overall makeup, despite being two different commodities. These futures, utilizing the symbol BZ, represent 1,000 barrels and are quoted in U.S. dollars and cents. The contracts trade in all 12 months of the calendar year and currently extend out to December of 2019, giving investors a wide timeline to choose from. Also note that these contracts are optionable for those looking to make a more speculative bet [see also Brent Crude vs. WTI: The Best Performing Commodity]. [...]

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